Have You Ever Felt Betrayed
By Your Credit Card Processing Company?
Merchants have learned a valuable lesson about making
sure they are doing business with a reputable processing
company. There are many honorable credit card processing
companies out there - not just World Payment Services™
-- sorry, I couldn't help myself. ;-).
Make sure, BEFORE making a decision on which credit
card processing company is going to handle your money,
that you ask the right questions. The following article
was provided by The Green Sheet, which in their words
is "the definitive financial services publication dedicated
to meeting the informational, educational and inspirational
needs of today's busy ISOs and ISAs."
Remember, should you ever desire a free analysis of
your current Merchant Statement or Agreement, please
do not hesitate to call us - without obligation. The
article begins here.
First Federal Trade Complaint
Against An ISO
The Federal Trade Commission announced its first federal
district court complaint against an Independent Sales
Organization (ISO) for unfair and deceptive practices
related to the marketing of credit card and debit card
merchant accounts to small businesses nationwide. In
its complaint, the FTC stated that the defendant and
its principals misrepresented the terms of - and then
inserted fine print into - merchant account agreements,
allowing the company to fraudulently debit previously
undisclosed fees from the merchants' bank accounts.
This complaint may be just the first shot across the
bow of the bankcard industry, as the Federal government
begins to look closely at how ISOs in general and Certified
Merchant Services in particular do business. While the
initial focus on the part of the FTC seems to be bankcard-related,
the Commission has included Certified Merchant Services's
check-conversion business in its complaint, which means
that check conversion also will get its first federal
Our readers should know that the FTC files a complaint
when it has "reason to believe" that the law has been
or is being violated and it appears to the Commission
that a proceeding is in the public interest. A complaint
is not a finding or ruling that the defendants have
actually violated the law.
At the FTC's request, a federal district court has issued
a temporary restraining order (TRO) against the defendants,
has frozen the defendants' assets and has appointed
a receiver to oversee the company's future operations.
The FTC filed the complaint against Certified Merchant
Services, Ltd.; Certified Merchant GP, Inc.; Certified
Merchant Services, Inc. (collectively Certified Merchant
Services); Jonathan Frankel; Craig Frankel; and Randal
A. Best, of Plano, Texas. The companies also do business
under the names Transaction Merchant Services (TMS),
Transaction Merchant Services.com and Electrocheck.
Jonathan Frankel and Craig Frankel are both officers
and directors of Certified Merchant Services. The former
is also believed to be the President, and the latter
the Vice President and Treasurer, of the corporate defendants.
"Processing credit card transactions is essential for
anyone in business," said J. Howard Beales III, Director
of the FTC's Bureau of Consumer Protection. "But small-business
owners shouldn't have to worry about unauthorized charges
from someone who is supposed to be working for them.
The FTC will continue to follow up on reports of unfair
and deceptive sales and billing practices and stop perpetrators
cold." The Commission's Allegations According to the
FTC, since at least 1999, Certified Merchant Services
and the individual defendants - either directly or through
sales agents - initiated contact with small-business
owners throughout the United States to induce them to
purchase their goods and services, including the establishment
of merchant accounts.
The Commission's complaint alleges that Certified Merchant
Services and the individual defendants violated the
FTC Act by unfairly and deceptively (1) modifying customer
contracts; (2) debiting their accounts without authorization;
(3) making misrepresentations regarding various goods
or services offered; and (4) failing to disclose various
charges or fees. Specifically, the complaint states
that in numerous instances, after merchants had signed
applications and without their knowledge, Certified
Merchant Services inserted pages of fine print, including
fee and expense information. Certified Merchant Services
allegedly then used these pages to justify debits of
fees or expenses from the merchants' deposit accounts
with no notification.
Certified Merchant Services allegedly tried to disguise
these debits, listing "H-Semi," and "H-Can," instead
of Certified Merchant Services, as the company withdrawing
the fees. The FTC further contends that in many cases
Certified Merchant Services debited the fees from the
merchants' accounts before providing the merchants with
promised card-processing equipment or supplies, before
the merchants signed up for processing services or before
such services were activated, and even though some merchants
had canceled their service.
In addition, according to the complaint, Certified Merchant
Services deceptively represented that:
If merchants purchased its services, it would save them
money each month on their card-processing expenses.
If merchants were dissatisfied with any services or
representations made by the company, they could cancel
or transfer the service to another card processor at
any time with no further obligation.
There was no minimum monthly fee for the services offered.
If merchants were charged cancellation fees by prior
card processors, the company would reimburse them.
Finally, the Commission said that in many instances
Certified Merchant Services deceptively failed to disclose,
clearly and conspicuously, that it would charge merchants
certain fees, including a minimum of $25 if the merchants
did not reach a certain level of card sales; a semi-annual
fee of between $33 and $50; and a cancellation fee of
between $300 and $400 for canceling within three years
of signing a service contract. Relief Sought In addition
to seeking and securing the TRO and asset freeze, the
Commission sought and obtained the appointment of a
receiver to oversee Certified Merchant Services's business
operations while the FTC seeks to obtain redress from
the court to remedy the alleged law violations. As many
merchants depend on credit card and debit card transactions
on a daily basis, the Commission proposed a limited
asset freeze that would allow the receiver to operate
the merchant accounts and deposit net card sales' proceeds
into the merchants' deposit accounts.
The Commission vote authorizing staff to file the complaint
was 5-0. It was filed in the U.S. District Court for
the Eastern District of Texas on Feb. 11, 2002. More
information may be found at